This current application addresses Regenerative Medicine (11) as the broad challenge area. Specifically, this application seeks further understanding of molecular pathways that control expansion and differentiation of periosteal mesenchymal stem cells (MSCs) during cortical bone graft healing and incorporation. The proposal fits into the following challenge topics: 11-AR-101*: Musculoskeletal and Skin Tissue Regeneration. Periosteum plays key role in repair and regeneration. Autograft is superior to synthetics or allograft in reconstruction largely due to the presence of mesenchymal stem cells (MSCs) residing in periosteum. Currently the molecular pathways that regulate proliferation and differentiation of periosteal MSCs at the site of healing are poorly understood. In response to the challenge topics identified by NIH, we propose a series of novel approaches to define a critical pathway, namely the Hedgehog pathway, in periosteum-mediated bone graft repair and incorporation. Hh pathway has been shown to be critically involved in embryonic limb development. However, its role in adult bone repair remains elusive. Our preliminary data demonstrates that Hh pathway still operates in adult periosteal repair. Activation of Hh pathway markedly enhances the differentiation of MSCs isolated from autograft periosteum and induces bone formation in vivo. We therefore hypothesize that activation of Hh pathway plays key roles in osseointegration of cortical bone grafts via stimulating osteogenic differentiation of periosteal MSCs. Engraftment of Hh activated periosteal MSCs at the site of compromised periosteum will enhance cortical bone graft healing and incorporation. In Aim1, we will define the role of Hh-loss-of function in periosteum-dependent cortical bone graft incorporation by targeted deletion of Smoothened, the receptor that tranduces all Hh signaling in periosteal MSCs. In Aim2, we will define the role of Hh-gain-of function in cortical bone allograft incorporation by engraftment of Hh-activated periosteal MSCs at the site of compromised periosteum. The proposed study will bring new insights into the understanding of molecular control of periosteum-initiated bone graft incorporation, further offering a potential pathway-targeted therapy for improved healing at the site of compromised periosteum. The long-term goal of our project is to identify critical pathways and mechanisms for bone repair and reconstruction. Specifically in this project we propose to examine the role of Hh pathway in repair and regeneration.